Planned Healthcare Plan Tax Already Pinching Employers

Supporter is growing among lawmakers from both sides of the aisle to replace or replace the so-called Cadillac tax that threatens to hit one-in-five U.S. employers when it takes effect in 2018.

Congress has a long list of issues to address as 2015 winds down, but support is growing among lawmakers on both sides of the aisle to repeal or replace the so-called Cadillac tax that threatens to hit one in five U.S. employers when it takes effect in 2018.

Enacted as part of the Affordable Care Act, the Cadillac tax is a 40 percent nondeductible excise tax on high-cost healthcare plans. The tax applies to fully insured and self-funded employer healthcare plans that exceed annual limits of $10,200 for individual coverage and $27,500 for family coverage. The Congressional Budget Office has estimated the tax would raise $87 billion between 2018 and 2025.

Many employers are already looking to make changes to their benefit plans to avoid the tax. According to a recent Kaiser Family Foundation study, 53 percent of employers with 200 or more employees say they have already reviewed their healthcare plans to see if they would trigger the Cadillac tax, and 19 percent say their plan with the largest enrollment would do so. Meanwhile, 13 percent have already adjusted their plans, with 8 percent switching to a less expensive plan.

Many in the business community, ASAE included, have argued that the changes employers are making to their group healthcare plans will end up reducing benefits and transferring the cost of insurance to employees through increased deductibles, reduced covered services, use of private exchanges, and the reduction or elimination of flexible spending accounts.

A bipartisan bill to repeal the tax was introduced in September by Sens. Dean Heller (R-NV) and Martin Heinrich (D-NM); its House companion was introduced by Rep. Joe Courtney (D-CT). Though Congress has a habit of waiting until a problem is imminent to address it, in this case lawmakers may act sooner rather than later to protect employers and their employees from higher costs and lost benefits.

[This article was originally published in the Associations Now print edition, titled "Roll Back the Cadillac?"]